BCO Account

Submitted by Kevin Vasilik on Fri, 2017-08-04 20:11

Hello, we have a client who lost her spouse in February. When provided options for her deceased husband’s TSA account, she decided to leave it “as is” which for this company meant changing it to a BCO, or Beneficiary Continuation Option on her deceased husband’s account. We have been speaking with the company and initially were told it could be moved into an Inherited IRA, then to an IRA, but the transfer did not go through, based on the registrations not matching.
We are now wondering if we might be able to process a full surrender of the BCO contract and then process as a 60 day rollover into client’s IRA. However, we are being told we will not be able to do this either.

Is anyone familiar with this, and if so, do we have the ability to process this to client’s IRA without a taxable event. Current company is indicating you literally cannot do anything other that take taxable distributions. Please help. Thanks!



Submitted by Alan - IRA critic on Fri, 2017-08-04 20:21

I would try elevating the discussion to a higher level of the plan administrator. While she could take a distribution and then roll it over herself within 60 days, that would probably result in 20% mandatory withholding which she would have to replace with other money to make the rollover completely non taxable. Another option might be to set up an inherited IRA with an IRA custodian and have them request a transfer from the TSA. Once the funds are there, she could roll it over to her own IRA, although if she is under 59.5 she should keep it inherited until age 59.5. How old was husband when he passed? Note that her RMDs will be much lower with an owned IRA than remaining as a BCO. Usually, these problems surface for non spouse beneficiaries and you rarely hear of one for a surviving spouse.

Submitted by Kevin Vasilik on Wed, 2017-08-09 18:47

We previously tried to initiate a direct transfer to an Inherited IRA, but were unsuccessful due to a registration mis-match.  The current company does not require 20% mandatory withholding on the full surrender (which is why we are wondering if this is a good option). I believe the husband was around age 80.  Surving spouse is currently 79.  Thanks.

Submitted by Alan - IRA critic on Wed, 2017-08-09 19:15

I wonder about this plan administrator. It is an IRS requirement that 20% withholding be applied to the portion of a distribution in excess of the annual RMD, which is eligible for rollover. If she opts for the distribution, does she have the money to replace the withheld amount in the event the plan changes their mind?  As for a direct rollover, has the plan indicated exactly how the inherited IRA must be titled for them to release the funds to the IRA Custodian? Not sure what they are thinking, as I indicated this is a very rare issue for a surviving spouse.

Submitted by Kevin Vasilik on Wed, 2017-08-09 22:51

We agree that this is all very odd, and against what we normally see occuring.  Yes, she would be able to replace the 20%. They originally indicated we could do a direct transfer to an Inherited IRA. (But then didn’t accept it). I think we are just wondering if its better to be left alone.  However, I think we will call back and ask for a higher level of service and see if we can make heads or tails of this one.  Thank you for your time & responses; we always value your opinion!

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